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Mandatory Arbitration in Big Law and Accounting Limits #MeToo Progress

Posted on Jan. 26, 2021

For those joining a new firm or partnership this year, the devil may be in the details. Growing attention to gender gaps and diversity hasn’t eliminated what some attorneys describe as inequitable policies that reinforce imbalances.

Despite the #MeToo movement, allegations of sexual harassment and discrimination can still lead victims through a gauntlet of challenges, rather than to an efficient resolution, according to employment lawyers. Mandatory arbitration clauses in employment and partnership agreements exacerbate an already stark gender divide in law and accounting, practitioners told Tax Notes. Many high-profile firms have reformed their policies to favor employee choice on the matter of how to pursue claims, but the pace of change is slow, they say.

Representatives at several of the world’s largest accounting firms spoke with Tax Notes about their women’s initiatives and progress on female and minority representation. Major firms have comprehensive programs for supporting women as they pursue careers in fields like tax and accounting that have struggled to shake an "old boys’ club" stereotype.

But the way employers respond to claims of discrimination and harassment also sends a message, according to Michael Willemin of Wigdor LLP. Willemin represented former EY partner Karen Ward in a costly and lengthy legal battle against the firm that followed her internal reports of discrimination and harassment beginning in 2014.

The Gender Cliff

Like tax law graduates, accounting graduates have been closely split between men and women in recent years, according to data from the Association of International Certified Professional Accountants. Women still comprise the vast minority of partners at law and accounting firms, however. While women made up 51 percent of new graduates with bachelor’s and master’s degrees in accounting in 2017-2018, and 51 percent of new graduates hired by U.S. CPA firms into accounting and finance functions in 2018, they made up just 23 percent of partners that year, according to the AICPA’s 2019 trends report.

Despite their efforts on diversity and inclusion, the biggest accounting firms fare no better on that front. Fifty percent of PwC’s global college hires were women in fiscal 2020, and only 22 percent of its partners were women, according to the firm’s Global Annual Review 2020. That's up from just 13 percent in 2006.

Women make up 21 percent of BDO USA partners as of fiscal 2020, up 11 percent since 2005, according to Cathy Moy, BDO USA’s chief people officer. “Across our tax practice specifically, 23 percent of all partners are women,” Moy said.

Asked what percentage of Grant Thornton’s partners are women, a spokesperson said the firm only reports numbers in the aggregate for all partners, principals, and managing directors, “since their roles and responsibilities are quite fluid and similar, regardless of title.” He said in August 2020 that the proportion of women in those roles was 26 percent.

“We want to get to a third of our partners first,” Kate Barton, EY global vice chair of tax, said when asked if 50 percent female partners is the firm’s ultimate goal. "A lot of our new people coming in are female, and we need to not lose them," she said. “Some of our women — and it goes for men, too, but mostly women — sometimes they get into those middle ranks and say, ‘Am I going to be able to make this work?’”

Although women are clear minorities among partnerships in both law and accounting, those who have worked in both industries often report that the latter is more progressive on issues of gender and diversity.

The difference could be related to scale, according to Shannon Schuyler, PwC’s U.S. chief purpose and inclusion officer. There tends to be a difference between the number of people hired by law firms and those hired by accounting or professional services firms, she said. The sheer number of people accounting firms need to attract pushes them to be more progressive, she said. “Being competitive really means making sure that your environment becomes more of what people are expecting for themselves . . . professionally, but also personally.”

Nikki Crighton, a tax principal at KPMG, told Tax Notes she agrees that the accounting world is more progressive than law firms but said she doesn’t think the difference is attributable to a lack of desire on the part of law firms to support women. “Law firms have a different leverage model; they have different resources and different business demands,” she said. “Accounting firms are in a better position to put a focus on the promotion and retention of women.”

Asked whether KPMG has targets for its proportion of women partners, Crighton said the firm doesn’t maintain targets for any diversity group. “We really take the view that all of our people have elements of diversity,” she said.

Barton said EY is focused on the science behind gender equity. “I think everybody gets the business case,” she said. “Our stats have shown that it might take until 2050 for us to get to gender parity in some of the major markets. . . . That just is way too long, so we’re looking to accelerate that,” she said of EY’s global "Women. Fast Forward" program for advancing global gender equality.

For a while the approach to progress on the gender divide was just to let it happen, particularly given that new hires at the campus level were pretty evenly split from a gender perspective, Schuyler said. Now it’s understood that “this has to be deliberate; this has to be a concerted effort to make sure that it works, and not just hope that it does,” she said. “It’s a journey that you’re on that you will never be off of.”

A Fly in the Ointment

Countervailing forces working against diversity initiatives and targets that have become ubiquitous among large law and accounting firms are sometimes rooted in employers’ own policies and nonnegotiable employment agreements, some practitioners say.

“I tend to see a far greater . . . gender imbalance in pay, in promotions, and opportunities in the financial sector, as well as the accounting and legal services sector,” Willemin told Tax Notes. “These are some of the biggest companies in the world, so there’s certainly a spotlight on them.” Willemin said the imbalances are often particularly glaring in leadership roles — not only from a gender but also from a race perspective. “That trickles down,” he said.

While scale was raised by Schuyler as a possible forcing function for progressivity in large accounting firms, it may also help explain the spotlight, and why allegations of discrimination and harassment in the industry can draw considerable public scrutiny and media attention. “We’re an organization of 55,000 people, so we can’t control the actions of people at all times,” said Sarah Tropiano of PwC.

PwC has a well-used ethics hotline that employees with claims of mistreatment can use confidentially to open and resolve cases, Schuyler said. “The things that you’ve seen coming out there with the #MeToo movement, etc., have allowed people to be more open, have allowed people to have the dialogue and to realize that if their treatment isn’t right, that they can voice that and they have a place to go,” she said, adding that she would love for there to be no calls to the ethics hotline.

Asked whether PwC requires mandatory arbitration for discrimination and harassment claims, Tropiano said the firm doesn’t comment on employment policies. Grant Thornton and BDO also declined to comment on the question, and neither KPMG nor Deloitte provided answers to inquiries about mandatory arbitration clauses in employment and partnership agreements.  

EY said in a statement that it considers arbitration to be a “fair and equitable” method for resolving Ward’s matter. Willemin said it was a silencing mechanism in her case.

Ward filed a discrimination and retaliation charge against EY with the Equal Employment Opportunity Commission in September 2018. She said she was subjected to sexual harassment, discriminatory pay, and a hostile work environment during her over-five-year employ with EY. Internal complaints resulted in warnings and retaliation that led to her eventual termination in October 2018 after she had generated approximately $50 million in fees for the firm, according to her charge with the EEOC.

Ward made a request to EY’s then-CEO, Mark Weinberger, that she be voluntarily released from the arbitration clause in her partnership agreement, which he declined, according to a complaint filed with the U.S. District Court for the Southern District of New York in July 2019 asking the court to adjudge the clause unenforceable. In March of that year, an arbitration panel had ruled that Ward would have to split the costs of arbitration with EY, and she was billed roughly $185,000 for those costs by the time she initiated her district court action, the complaint said. Raising her claims in district court would cost only $450, it added.

Willemin said that although "unconscionable" is probably the colloquially appropriate term, from a legal standpoint, “the argument is essentially that to have someone be required to pay so much more than they would be required to pay if they were in court just renders the arbitration agreement invalid under an effective vindication doctrine."

“The fact that EY insisted to the arbitrators that the fees should be split in this case — that’s a message to other women at EY who might otherwise come forward and pursue claims that it’s going to be completely cost-prohibitive for you to do so, so you shouldn’t even bother,” Willemin said.

Employers defend arbitration clauses as protective of victims, but “the actual process itself is severely slanted toward the employer on a number of levels,” Willemin said. Even when companies pay for the arbitration process, it’s a poor proxy for justice, and it’s used by companies to conceal misconduct from the public, and ultimately to protect themselves and the individuals who are alleged to have engaged in discrimination or harassment, Willemin said.

Arbitration is a money-making business, and arbitration firms are “absolutely going to try to keep their customers happy,” said Tanuja Gupta, engineering program manager at Google and a lead organizer for Googlers for Ending Forced Arbitration. Employers try to cast the controversy over forced arbitration as a debate about the merits of arbitration, “as opposed to the actual debate, which is one of choice,” Gupta said.

Arbitration proceedings aren’t subject to a public record, and the final ruling doesn’t have to be explained, Gupta pointed out. Two victims could have the same claim and end up with quite different outcomes, she said.

Molly Coleman, co-founder and executive director of the People’s Parity Project, agreed that the outcomes in arbitration are skewed dramatically toward the more powerful entity, “far more than in the court system.” If employers really believed that arbitration has the advantages they claim, they would support employee choice, she said. “In general, if you have to force somebody into something and hope that they don’t notice what you’re doing, it’s a sign that the arguments aren’t actually there for the policy,” she noted.

Firms like to say that arbitration is faster, cheaper, and more efficient and streamlined, said Noah Lebowitz, an employment lawyer in Berkeley, California. “If these factors genuinely were true, there would be little difficulty convincing employees to voluntarily bring their disputes to arbitration,” he said.

Lebowitz said he’s been representing individual employees for almost 25 years and has litigated multiple employment arbitrations to hearing. “Not one of these purported ‘benefits’ is true, with the exception of ‘streamlined’ in the sense that individuals’ access to discovery of information held exclusively by the employer is significantly limited compared to court,” he said.

Published studies show that individuals in arbitrated employment and consumer cases tend to win less frequently, and when they do win, are awarded substantially less than in cases that are litigated in court, Lebowitz said. “My personal experience bears that out.”

In a 2011 study of almost 4,000 arbitration cases derived from employer arbitration procedures, the employee win rate was just 21.4 percent, “lower than employee win rates reported in employment litigation trials.” The median award in cases in which employees prevailed was $36,500, and the average was almost $110,000; both amounts are “substantially lower than award amounts reported in employment litigation,” according to the study.

Consumers won just 35 percent of arbitral awards in a 2015 study of almost 5,000 consumer cases filed with the American Arbitration Association between 2009 and 2013. The authors of that study cautioned that fully arbitrated disputes may not represent all disputes, but said “it is sobering that the consumers in our data prevailed less often than those in previous studies of [American Arbitration Association] records.”

In a 2019 article reporting the results of a study of over 40,000 cases filed between 2010 and 2016 with major arbitration providers, authors Andrea Chandrasekher and David Horton said that “the plaintiff win rate in arbitration is generally lower than its analogue in the judicial system.” That does not conclusively establish that courts are more hospitable to plaintiffs, they said, adding that the evidence “could reflect differences in the nature or quality of claims that are subject to forced arbitration clauses.”

In good news for individual complainants, “a wave of reforms has made arbitration surprisingly affordable for consumers, employees, and medical patients,” Chandrasekher and Horton said. They reported that with at least three of the leading arbitration providers, most plaintiffs pay no arbitration fees.

Arbitration agreements usually provide that the employer will pay the arbitrators' fees, Willemin said. Early in 2020 he said he considered Ward’s case for invalidating the arbitration agreement in her contract to be particularly strong in light of the arbitrators’ decision to split the fees in her case at EY’s request.

But Ward lost that battle in June 2020, when the district court granted a motion filed by EY to compel arbitration. The firm maintained that Ward’s complaint was a collateral attack on the arbitrators’ ruling on splitting costs, and it said in its motion that the firm had paid her over $2.5 million as an EY principal and $325,200 in severance. The court agreed that Ward’s effective vindication challenge should be submitted to arbitrators.

In a July 2020 statement emailed to Tax Notes, EY denied Ward’s allegations, which the firm called baseless, and said it remained committed to arbitration in her case. Willemin said the court’s decision in Ward’s case was disappointing. “EY has demonstrated that it has still a long way to go in terms of really embracing the idea of protecting civil rights, preventing discrimination, harassment, retaliation, and treating employees fairly and with respect,” he told Tax Notes. To tell an employee making allegations of misconduct that they’ll have to litigate their claims in secret arbitration and will have to pay up to $200,000 to do so — “it tells a message to other employees: Don’t stand up,” Willemin said.

EY isn’t alone. On April 3, 2020, the Fourth Circuit reversed a district court’s denial of a motion by PwC to compel arbitration of race discrimination and retaliation claims by Shannon Ashford under Title VII of the Civil Rights Act of 1964. “The Supreme Court and our court have consistently held that contractual provisions capable of being reasonably read to call for arbitration should be construed in favor of arbitration,” the opinion said. By agreeing to arbitrate her Title VII claims, Ashford didn’t waive any substantive rights, the court said. “She will still have an opportunity to present her case and obtain relief if PwC is found to have discriminated against her,” it said.

Patent litigator Constance Ramos, represented by Lebowitz, had better luck with her discrimination, retaliation, unfair pay, and wrongful termination suit against international law firm Winston & Strawn LLP. In a November 2018 opinion, the California Court of Appeal said the trial court “erred in compelling Ramos to submit her claims to arbitration” and declared the parties’ arbitration agreement unconscionable.

Winston & Strawn had moved to compel arbitration under a clause in the firm’s partnership agreement that would have required Ramos to pay half of the venue costs, including the hourly fees of a three-arbitrator panel, according to Lebowitz. When the firm lost in the appellate court, it sought review from the California Supreme Court. “Winston was supported in this effort by amicus letters submitted from Jones Day, Akin Gump, Perkins Coie, Bryan Cave, and Ropes & Gray,” although its petition for review was ultimately denied, Lebowitz said.

Many law firms mandate arbitration in disputes involving partners “so that client confidences do not inadvertently become part of the public record in court,” argued Ropes & Gray LLP in its January 2019 amicus curiae letter to the California Supreme Court. It’s nonsensical to consider arbitration agreements to be one-sided in the law partner context, Jones Day said in its letter, which was signed by representatives of Akin Gump, Bryan Cave, and Perkins Coie. “There is no ‘firm’ side and ‘partner’ side, because the firm is itself a collection of partners,” it said.

Winston & Strawn argued for the upending of the California Supreme Court’s decision in Armendariz v. Foundation Health Psychcare Services Inc., 24 Cal. 4th 83 (2000), which set minimum standards for forced arbitration provisions in cases of unwaiveable statutory rights, Lebowitz said. If Armendariz had been overturned, “hundreds of thousands of California workers would have lost minimum protections in forced arbitrations,” he said. Winston & Strawn went so far as to petition the U.S. Supreme Court for certiorari, and Ropes & Gray LLP submitted an amicus brief arguing that arbitration is efficient and cost-effective and again claiming that litigation poses confidentiality concerns. Cert was denied by the Supreme Court in October 2019.

The Proverbial Floodgates

One employer-favorable characteristic of mandatory arbitration clauses is that they preclude class actions, Coleman pointed out. “How do you show that a company is systematically enabling harassment or discrimination if you have to bring individual cases of arbitration?” she asked. “Some of these outcomes are dependent upon the ability to show that the problem is pervasive.”

For the most part, for-profit companies are happy to put some women and people of color in senior positions because they know that’s an asset in the business world, Coleman said. The companies want to seem progressive, but they also know that if they open the door to a class action lawsuit, that hurts their bottom line, she said.

Donna Kassman, who joined KPMG as a tax associate in 1993, filed a class action complaint against the firm in 2011 in the U.S. District Court for the Southern District of New York. She alleged gender discrimination, claimed that KPMG perpetuates the pay gap in the accounting industry, and argued that women do worse at the Big Four than on average in the industry. “Although KPMG’s workforce is approximately 50 percent female, partnership is largely reserved for men,” the complaint said. The dispute spanned close to a decade before the parties announced on December 21, 2020, that they had reached a settlement in principle.

Kassman sought a list of remedial measures in her complaint, including an injunction against discrimination, a restructuring of KPMG’s policies, back pay, front pay, punitive damages, and compensatory damages. The district court was urged to certify a class of roughly 10,000 women in KPMG’s tax and advisory functions, but in a November 2018 order, it declined to do so, saying the Supreme Court’s decision in Wal-Mart Stores Inc. v. Dukes, 564 U.S. 338 (2011), made it “extremely difficult for a gender discrimination suit to proceed as a class action when the discriminatory treatment was the product of local supervisors exercising their discretion in awarding pay and promotions.”

Morrison & Foerster LLP is facing a lawsuit in the U.S. District Court for the Northern District of California that began in 2018 as a class and collective action alleging that the firm “engages in systemic discrimination based on gender, pregnancy, and maternity.” The firm touts its policies for parental leave as generous, “but taking such leave comes with a price,” according to a February 2020 complaint. “Even while the firm fails to pay mothers who have been held back on par with their actual seniority, it does not automatically bill their work out at a lower rate to clients,” it says. Hearings on motions for summary judgment have been set for January 28.

In April 2019 a complaint was filed against Jones Day in the U.S. District Court for the District of Columbia alleging systemic gender discrimination and accusing the firm of operating as a fraternity. The complaint sought class certification and $200 million in damages, plus penalties, restitution, and costs, although the claims in the case were significantly narrowed after Jones Day produced nationwide compensation data. On September 4, 2020, a separate sex discrimination and retaliation lawsuit against Jones Day partially survived a motion to dismiss.

Jessica Casucci, a former tax partner at EY, said in an April 2018 EEOC complaint that the firm showed a lack of concern for women who had suffered sexual assault and harassment. The complaint alleged specific instances of harassment by another former tax partner and said that “EY did not take the matter seriously.” She had worked at the firm for roughly 14 years. Casucci ultimately settled her dispute with EY and told Tax Notes that she wasn’t permitted to speak about the case.

Horton and Chandrasekher said in their 2015 article that plaintiffs’ lawyers have tried to fill the void left by what they describe as “the abolition of the consumer class action” by filing many individual claims against a company, but that this is “a pale substitute for the traditional class mechanism” and creates extreme repeat players out of large companies.

“These frequently arbitrating entities win more and pay less in damages than one-shot entities,” Horton and Chandrasekher said. “The [Supreme] Court’s consumer arbitration revolution not only shields big business from class action liability, but gives them a boost in the handful of matters that trickle into the arbitral forum,” they concluded.

In their 2019 article, Chandrasekher and Horton acknowledged that “although arbitration does indeed favor repeat-playing businesses, that is just half of the repeat player story.” The experience of plaintiffs’ counsel matters, too. In fact, “no variable affects win rates as dramatically as whether a plaintiff hires attorneys with arbitration experience,” they said.

Early Adopters

The #MeToo movement ushered in announcements by several major U.S. employers about their intent to abolish mandatory arbitration for sexual harassment and other claims. “The silencing of voices has helped perpetuate sexual harassment,” Microsoft Corp. said in a December 2017 statement. The company said that while it has “never enforced an arbitration provision relating to sexual harassment,” it did have employment agreement provisions for some employees that required arbitration in the case of harassment claims, and that those provisions would be waived immediately.

Uber announced in May 2018 that it would “no longer require mandatory arbitration for individual claims of sexual assault or sexual harassment by Uber riders, drivers, or employees.” It also said assault and harassment survivors can pursue settlements with the company without confidentiality agreements. “Divulging the details of what happened in a sexual assault or harassment should be up to the survivor,” it said.

While arbitration may remain the optimal path for some, “we recognize that choice should be up to you,” Google CEO Sundar Pichai said in a November 2018 letter to employees that vowed not to require arbitration for sexual harassment and assault claims. Facebook, Airbnb, and eBay followed with similar announcements soon after.

Several international law firms with top-tier tax practices said they would abolish mandatory arbitration in at least some circumstances. Orrick Herrington & Sutcliffe LLP tweeted in March 2018 that it was time for a change and that it would “no longer require any employees, including associates, to sign any arbitration agreements.” McDermott Will & Emery LLP made a similar announcement roughly a year later.

“The overwhelming majority of BigLaw firms now recognize that they will not be able to recruit top legal talent if they continue to force workers into arbitration if they experience workplace misconduct,” according to a February 2020 People’s Parity Project post by the organization’s co-founder, Vail Kohnert-Yount.

Lingering Inconsistencies

Despite progress, employers often don’t go far enough — for example, when they eliminate forced arbitration for sexual harassment but not for other claims, according to Coleman. “We’re acknowledging that this system doesn’t work for victims of harassment and assault — but only if that’s sexual harassment and assault?” she asked. If the system doesn't work in cases of sexual harassment and assault, Coleman said, why would it work for other types of discrimination or employer harm?

It is also troubling that while companies want good publicity and want to get people in the door, “I have not seen evidence that companies are scared to reinstitute arbitration clauses the second they think the spotlight is off of them,” Coleman said.

“In the current environment where corporations are falling over themselves to circulate position statements of being antiracist and supportive of movements like Black Lives Matter, the question often raised is how much of this is real and how much is for show?” Lebowitz said. If firms aren’t open to a public reckoning of their internal practices, “it is fair to question the sincerity of their public pronouncements,” he said.

“We see it all the time: A law firm will be named the best firm for women, but they’re forcing workers into arbitration,” Coleman said. That is in part because the issue is somewhat peripheral. “It seems a little obscure, it’s a little wonky,” and when firms are ranked, it’s a lot easier to count the number of women in senior leadership positions than it is to measure the impact of forced arbitration clauses, Coleman said.

There’s also an awareness gap. “I think the sad truth is that a lot of people don’t know what it is or think it’ll never apply to them,” Gupta said. “I certainly never thought it would apply to me.”

“It is almost universally true that in the cases in which . . . firms have dropped forced arbitration, they’ve only done so as a result of massive pressure from prospective employees or from workers themselves,” Coleman said. She added that workers in some industries have more leverage than others and that it's unsurprising that companies like Google might feel more pressure to drop forced arbitration. Big Tech is full of high-powered employees who can secure employment elsewhere if they’re fired for their activism, Coleman said. Workers at fast food restaurants, for example, can’t levy the same pressure and are at a comparative disadvantage, she said.

But Lebowitz said that in his experience, “traditional large law firms — what some might call Big Law — are some of the most entrenched, immovable entities when it comes to modernizing or reforming progression or pay structures to achieve equity. . . . This observation has been made repeatedly.”

Public pressure and grass-roots efforts may not be enough to turn the tide, according to Coleman. “Workers have been disempowered by the law for so many years at this point that it’s hard to imagine a sufficient level of outcry," she said. "We’re going to have to get to a legislative response on this.”

Some states — including California and New York — have passed laws to insulate employees against forced arbitration, although that legislation has been challenged in light of the Federal Arbitration Act. A federal bill, the Forced Arbitration Injustice Repeal Act, passed the House of Representatives in September 2019. That’s the first time legislation of this kind has made it so far, though not the first time it’s been introduced, Coleman said.

The issue has been cast as a partisan one, but “the truth is that there are Republicans and Democrats who support this change,” Gupta said. Whether from a civil rights or market interference perspective, there are "lots of reasons to say that arbitration should not be forced,” she said.

Coleman agreed that it’s increasingly a nonpartisan issue. “There are people who at least purport to care about workers’ rights on both sides,” she said.

Complaints like Ward and Casucci's aren't isolated, but the persistence of mandatory arbitration may help explain why seeing them at advanced stages of litigation is relatively uncommon. The vast majority of sexual harassment incidents go unreported, according to a nationwide survey published in July 2020 by Women Lawyers on Guard that said reporting systems are “mostly not working.”

Ward’s case is important because “the type of behavior following the sexual harassment to which she was subjected is relatively subtle, but all too common in terms of how women are ostracized, how their opportunities are taken away, how they’re not supported, and how they’re essentially left to fail by companies after making complaints of discrimination,” Willemin said.

Litigating these cases also involves challenging subtleties, Willemin said. For example, an employer might provide a document that says an employee didn’t meet a specific revenue target, he said. “So you’ll need someone with a more discerning approach to try to figure out, 'Well, why didn’t she meet goal X, and is the reason that she didn’t meet goal X really a function of the fact that she was being discriminated against or retaliated against?'” he said.

The good news is that information is now being collected at record rates, and it’s not as difficult as it perhaps was in the past to demonstrate disparities in opportunities, Willemin said. The #MeToo movement has “opened people's eyes to the fact that discrimination is not just a grope,” he said. “It’s important for people to understand that a death by a thousand cuts is real, and it’s something that is extremely frustrating and faced by women all the time in the workplace.”

The movement has led people to realize that maybe this isn’t just about individual bad actors; maybe it's about a system that empowers these bad actors, Coleman said. “Once you start asking those questions, you get to forced arbitration pretty quickly,” she said.

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